Insufficient power supply remains the greatest business constraint in Nigeria

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Value Added Tax modification order for power sector

The recently released November 2018 edition of the Monthly Business Expectations Survey Report of the Central Bank of Nigeria (CBN) has revealed the seemingly obvious fact that the single most compelling factor constraining businesses in Nigeria is insufficient power supply.

The survey which was carried out with a sample size of 1,050 businesses comprising of small, medium and large organisations covering both import and export-oriented businesses identified six major impediments to Nigerian businesses.

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Insufficient power supply was the major impediment with 64.7 points followed by high interest rate with 57.9 points. Other identified constraints include unfavourable economic climate (55.1 points), financial problems (51.2 points), unclear economic laws (51.0 points), unfavourable political climate (48.6 points), access to credit (41.3 points), and insufficient demand (41.2 points). The report was, however, unclear as to what constitutes financial problems and economic laws.

Inspite of the constraining factors identified by the survey, the respondents expressed an overwhelming optimism on the microeconomic fundamentals of the country as they indicated that their outlook on volume of total order, business activity and financial conditions (working capital) remained positive during the review period.

While the respondents expected the Naira to appreciate against the Dollar and other major currencies in the coming months, they were of the view that inflation and borrowing rate would rise.

Although unemployment rate remains high in Nigeria, the survey indicates that the respondents were optimistic that jobs would be created in the coming months with the wholesale/retail trade sectors having the highest prospects for creating jobs, followed by services (31.2 points), industrial sector (26.6 points) and construction sector with 17.5 points.

Further analysis of the survey results indicates that the services sector was more disposed to business expansion followed by wholesale/retail trade and industrial sectors with 18.8 and 8.2 index points, respectively.

Generally, in the November survey report, respondents sounded more optimistic than they did in October.

Why is Electricity so important

The result of the survey underscores the fact that electricity is a very necessary and important ingredient required for businesses to function properly and to expand. Higher electricity costs drive business costs higher and reduce business competitiveness. This is because as costs of electricity rises, businesses look for alternative power sources like generators leading to reduced output and productivity thereby rendering them less competitive. A recent research by the World Bank finds “that power outages and deficient power infrastructure in Sub-Saharan Africa had a measurable negative impact on economic growth over the period of 1995−2007”. Constant and steady power supply should be one of the major focus of any politician that is wishing to get into Aso Rock and Nigerian votes should make any promise to that effect be one of the considerations for the upcoming election.

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